Sole proprietorship simply stands for single ownership and is the most preferred form of business. In this article, we are going to take a look at how to start a sole proprietorship business and why it is one of the best business structures to begin a business.
Sole proprietorship simply stands for single ownership and is the most opted form by all businesses. Run by an individual, the sole proprietorship business does not require any separate legal entity. Under this all the legal actions and transactions are taken under the name of the owner, and not separately for the business, making it the most suitable option for starting a business organization at a small scale. The most common example of a sole proprietorship business is the grocery store next to your house or even a doctor, as these are completely managed by a single person without the involvement of any legal entity. These businesses are not liable for any sort of legal registration.
However, the sole proprietorship firm is not limited to growth. As time passes, and the business grows, the individual can get the firm registration done and associate it with the legal entities.
Features of a Sole Proprietorship Firm
Planning to form a sole proprietorship business? Have a look at the features what it exactly holds, and whether it is the most suitable option for you or not. The features of a sole proprietorship firm are listed below:
Liability
The business owner is completely liable for all the gains and losses of the sole proprietorship business. Whether it be paying the loan or other transactions, if the individual fails to manage the finances, they will have to keep their assets at risk for the business and will be answerable to the law. It is crucial to understand these risks when considering proprietor registration.
Legal Formalities
To form a sole proprietorship business, there are hardly any legal proceedings and requirements involved, allowing the carrying out of the business with ease and minimum legal risks.
Identity of Business
The business identity is that of the owner, being completely responsible for all the tasks being carried out, without any specific accounts and finances under the name of the business.
Continuation of the Business
Forming a sole proprietorship is not an easy task, as it is completely reliant on the owner. In case of any mishap with the owner, the maximum possibility comes down to the point of the ceasing of the business.
Registering a Sole Proprietorship Business
Here are the steps to register a Sole Proprietorship Business
- Draft a business plan
- Build your credit
- Obtain necessary licenses and permits
- Register a business name
- Open a bank account
- Prepare for tax season
- Reduce liability
Even though it is not mandatory to register the business to form a sole proprietorship firm,, it is recommended to get it registered for the smooth functioning and easy expansion of it in the future as well. How the firm registration can be done includes the following:
Small And Medium Enterprise
Most of the start-ups and small-scale businesses opt for this type of firm registration, under the MSME Act. Registering under this is of benefit, as the government offers various schemes for SMEs.
Shop And Establishment Act License
The municipal party is responsible for the issuing of this license and is provided to the individuals as per the laws.
GST Registration
This type of firm registration, known as GST registration, is for businesses with a turnover of over 20 lakhs and those seeking to expand their business.
Documents Required for Sole Proprietorship Registration
Registering your business for sole proprietorship business ain’t a tough deal. To register your sole proprietorship business, the documents required for sole proprietorship include the following:
- Aadhar Card: It is one of the most important identity proofs for an Indian resident. Without the linking of the Aadhar card with the various accounts, the individual can’t carry out the legal proceedings.
- PAN Card: Filing of income tax return is not possible without a PAN card. And, further, the PAN card must be linked with the Aadhar card, making both of them mandatory documents required for a sole proprietorship. The application for the PAN card can be done online, with a nominal fee.
- Bank Account: For all financial transactions, it is important to submit the bank account details. It is important to have the correct address proof and identity proof and is recommended to get a separate account for the business.
- Office Proof: Whether rented or self-owned, it is important to provide the right documents for the registered office.
As such, for better functioning of the business, it is recommended to get the business registered with the above-mentioned documents for a sole proprietorship.
Benefits of Sole Proprietorship Business
There are many benefits to a sole proprietorship. But the three main benefits are:
Minimum Compliances
In comparison to companies, partnerships, and LLPs, sole proprietorships have the least amount of compliance. The compliances are restricted to the filing of annual returns etc.
Easy to Incorporate
A sole proprietorship is the easiest to incorporate. All you need is a PAN card of the owner and a GST registration.
Economical
The biggest advantage of course is the amount of time, money, and resources one can save by operating as a sole proprietorship. The incorporation costs are almost negligible and the cost of compliance is also minimal
Conclusion
With all the mentioned features and methods of registration, you can easily register your firm as a sole proprietorship business. The only limitation is that the owner is solely responsible for all the happenings of the proprietorship firm. Additionally, if you are considering a different structure, company registration is also a viable option.
